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Direct Costing
Direct Costing
In Direct Costing, or Part Costing, that unit cost is calculated based on the concept that only Variable Cost is related to the product, while unit cost is calculated for all costs required by the manufacturing process in Full Costing. Thus, Direct Costing is the cost calculation where the cost is divided into variable cost and fixed cost based on the relationship between production and sales of the product, and the product cost is calculated by only the variable cost and the fixed cost is thought as Period Cost, and then the total cost is treated as the cost against the revenue for the period. Compared with that of Full Costing, this cost calculation is better in that calculation is simple, and moreover the documents of budget, profits, and cost against each plan is easily available. But only variable cost is included in the calculation, it needs more calculation of financial accountingf or adjustment.
Related term: Cost Accounting
In Direct Costing, or Part Costing, that unit cost is calculated based on the concept that only Variable Cost is related to the product, while unit cost is calculated for all costs required by the manufacturing process in Full Costing. Thus, Direct Costing is the cost calculation where the cost is divided into variable cost and fixed cost based on the relationship between production and sales of the product, and the product cost is calculated by only the variable cost and the fixed cost is thought as Period Cost, and then the total cost is treated as the cost against the revenue for the period. Compared with that of Full Costing, this cost calculation is better in that calculation is simple, and moreover the documents of budget, profits, and cost against each plan is easily available. But only variable cost is included in the calculation, it needs more calculation of financial accountingf or adjustment.
Related term: Cost Accounting
Reference：JIT Business Research Mr. Hirano Hiroyuki